Last week’s blog gave you 5 important ways Chapter 13 can save your home. Here are 5 more. You won’t ever need all of them, but together they cover a lot of scenarios.
6. Get lots more time to sell your home.
If you need to sell your home but are now or expect soon to be under threat of foreclosure, Chapter 13 usually gives you much more time to sell than would a Chapter 7 filing. That means you’d have more market exposure, which gives you a better chance at selling at a better price. That’s especially true if you are being forced to sell during a traditionally slower time of the year, or are trying to sell on a short sale (in which the house is worth less than the amount of the mortgage(s) against it).
If you are behind on your mortgage payments and have a foreclosure scheduled, filing a Chapter 7 case will usually only buy you an extra three months or so, or less if the creditor decides it wants to hurry the process. Often the only way to stop a foreclosure without filing under Chapter 13 is by paying the entire arrearage of payments—as well as late charges, foreclosure fees and attorney fees—all in a lump sum. This can easily total tens of thousands of dollars. Instead, in a Chapter 13 case you can usually stay in the home by making your regular monthly mortgage payments plus some progress towards paying the arrearage. If there is enough equity in the property, all the arrearage can often just be paid from the proceeds of the anticipated sale.
7. Deal effectively with child/spousal support liens against your home.
Chapter 7 does nothing to stop collection efforts against you if you are behind on your child or spousal support obligations, which can affect your home in two ways.
First, support obligations usually turn into liens against the real estate you own, including your home. This gives your ex-spouse the ability to force the sale of your home to pay the support arrearage. If a lien for unpaid support was already attached to your home before your bankruptcy is filed, then Chapter 13 would stop the execution of that lien as long as you comply with your Chapter 13 plan. Your plan must show how you are going to pay that arrearage before your case is completed, and you must stay current on those Plan obligations. But as long as you do all this, the support lien cannot be executed against your home. Instead after the underlying support debt is paid off, the lien will be released, with no further risk to your home.
Second, if not support lien has been placed on your home, Chapter 13 would prevent that from happening. Instead you’d have the opportunity to pay off the support debt while under bankruptcy protection, avoiding a lien from ever being placed.
8. More effectively address an income tax lien on a dischargeable tax debt.
If you owe an income tax upon which the tax lien has been recorded against your home, but the underlying tax can be discharged—because it is old enough and meets the other conditions for a dischargeable tax debt—then dealing with the lien is likely better under Chapter 13. Depending on the amount of equity you have in your home, under Chapter 7 the IRS or other taxing authorities may well not release the tax lien even after the underlying tax debt is discharged. In a Chapter 13 case, in contrast, there is an established mechanism for determining the value of that lien, and for paying it, so that at the completion of your case the tax debt is discharged and its lien is satisfied.
9. Property tax arrearages are also handled well under Chapter 13.
Usually, your mortgage requires you to be current on your property taxes, giving your mortgage lender another reason to foreclose if you are not. Your Chapter 13 Plan will demonstrate how you will pay off your property tax arrearage, so as long as you comply with your Plan obligations you will eventually catch up on your property taxes. Besides stopping any threat of tax foreclosure itself, your Chapter 13 case also stops your mortgage lender from arguing that you are in breach of your requirement to stay current on the taxes.
10. Prevent a Chapter 7 trustee from taking your home if has more value/equity than the applicable homestead exemption.
If you have more equity in your home than the homestead exemption allows, you risk losing your home in a Chapter 7 case. That risk is greater than usual now because the irregular housing market makes property values difficult to predict accurately. Also, Chapter 7 trustees have a lot of discretion, and so predicting how aggressive yours will be is difficult.
In contrast, Chapter 13 provides a much more predictable procedure for determining the value of a home, and a mechanism to protect the value of the home in excess of the homestead, if any.